For the majority of families owning and running businesses in the Rock Lobster Industry the end goal is usually to provide a future for the next generation and ensure the continuation of the business.
Kim Lee, Rabobank Succession Planner said ultimately families want all members to be happy with the arrangements on how assets are divided. Unfortunately how each family does this is often very different. Most of Rabobank’ s clients, in Australia, are family farmers and there are often challenges with transferring“ lumpy”, relatively low cash flow, but high capital gain’s businesses.
Rock lobster businesses are also mainly family businesses but the nature of this industry presents its own challenges when it comes to succession. These challenges usually come in the form of impediments to asset transfer which restrict the amount of available assets (as quota is finite). This has implications for the age structure of the industry and therefore its capacity to innovate and for individual family businesses to grow.
It can be relatively easy to transfer quota in discrete amounts in the Rock Lobster Industry where cash flow and operating profitability are strong and tend to be consistent. But there can be some additional barriers to asset transfer in the form of capital gain’s liabilities on quota values and access to exemptions on intergenerational stamp duty on transfers from the older generation to the younger generation.
There can be issues with seasonality of employment and the need to find out of season employment for those working in the business that can be distracting for business growth.
It is commonly the case that the younger generation have a clear progression in management succession from deckhand to skipper and then possibly to leasing quota and owning or leasing boats. The older generation will often then have a secure and stable retirement income flow and an asset that has been historically appreciating. The older generation commonly seek other pursuits in retirement rather than continuing hands on in the business. For the younger generation, the path for succession of assets and consequent ability to grow by taking on more debt may be restricted by lack of ownership.
In many cases the older generation is taking up the opportunity to expand the family’s asset base by taking on debt to diversify their assets into other industries, commonly property (residential/commercial), shares or primary industry assets.
This certainly helps when it comes to seeking fair or even equitable outcome in estate planning for families in this industry. Often transfers of some quota to family members who are not actively involved in fishing but lease quota back to fishing family members also creates opportunities for estate planning equity.
Today children are tending to return to family businesses later and partnering later, which has changed the succession environment for many fishing families.
“If families are to be happy with succession arrangements, it is really important that they discuss what their goals are, what the opportunities are, and what “fairness” in treatment of family members might look like. This is not a one-off discussion – it needs to take place through the lives of the younger generation and is something that needs to be reviewed every time the family or business environment changes, such as new partners, a death or someone starting to work in the business (even if they have come home for a short time).“
Kim said it is important to understand that expectations are often set early and may be difficult to change as business conditions change. So flexibility, awareness and education are important for all family members. This involves a lot of quality communication and not just a lot of talking.
Opportunities that working and owning family business assets present for family members and how each family views them are influenced by family culture (values) and history. However, most families are unaware of the cultural norms that influence the way they think and act. Differences in family culture express themselves in the way families view transparency of information flows (especially financial information), how money and how much money is spent, saved or borrowed; how female opportunities may be different to male inheritor/worker opportunities and how work is viewed relative to leisure
“These are just a few. Of course there are generational differences, as well as family differences, that have to be taken into account,” Kim said. “It’s essential to understand family culture and how it influences family and business goals. Unless you know what is driving you, it’s difficult to work out what the goals are.”
Goal setting is an exercise that can be complex. It requires discussion and an understanding of how each family member views things like; independence, transfer of assets now, compared to in a will; what is sacred, in terms of the value of place and legacy; what an opportunity to fish delivers compared to an opportunity to invest; whether it’s important to earn, or be given assets etc.
“Families that start early and manage to effectively explore and communicate values working to set and constantly review goals, are transparent in their approach to finances and are inclusive of all members, have more options open to them,” Kim said. “This gives them the greatest chance of success in the long run, because if all family members are included, solutions are often more creative and relationships strengthened.
“I don’t know how many times I have heard people in the community express despair around a “failed” succession and cited family member personalities, or adviser failings, when the failure often lies with the family’s approach to the process and their misunderstandings around differences in values and goals.
“Succession discussions are uncomfortable. It’s usually emotional and understandably succession agreements get put to one side, or are undertaken when an emotional event forces decision making. None of this makes for a great environment for making considered rational decisions.”
It’s also confusing - where to start, who to involve and what advice to get, because it’s multifaceted and multi-disciplinary. But Kim believes often it doesn’t really matter how it’s approached just as long as you keep at it, keep asking questions and keep everyone involved.
“You may find you can be taking one step forward and two back at times. You may hear confusing messages, but make sure you are able to articulate your goals well before you go to advisers as they can’t help your family until you are clear as to what you wish to achieve. “
An encouraging factor that Rabobank has found is, that today more families are approaching succession or family business continuity discussions as an important investment in the family’s future.
“It’s no longer a taboo subject or viewed as presumptuous on behalf of the younger generation. Family business negotiations and resultant agreements and review, are now being viewed as a very normal part of best practice in family business, Kim said.
Rabobank’s succession planning services offer a proactive approach to help your family business realise its potential and deal with change: To find out more click here.